What Do I Need to Buy a Business Safely?

Asset Deal vs Share Deal: The Choice That Shapes Everything

Every acquisition starts with one structural fork: are you buying the company's assets or its shares? In an asset deal you cherry-pick the assets and contracts you want and generally leave liabilities behind, and you get a stepped-up tax basis to depreciate — but you must separately assign each contract, lease, licence, and permit, many of which require landlord, customer, or regulator consent. In a share deal you buy the company whole, which is administratively simpler for transfers but means you inherit everything: hidden debts, tax exposure, pending litigation, and past conduct.

The tension is that buyers usually prefer asset deals for the liability protection and tax step-up, while sellers usually prefer share deals for capital-gains treatment (and in Canada, potentially the lifetime capital gains exemption). The chosen structure drives price, risk allocation, and tax for both sides, so it must be settled with a lawyer and accountant before the letter of intent is signed — reopening it later is expensive and can blow up the deal.

Due Diligence Is the Buyer's Main Protection

What diligence fails to uncover becomes the buyer's problem after closing, so this is where the real work lives. A thorough review covers financial statements and management accounts, tax filings and any arrears, all material contracts and their change-of-control clauses, litigation and contingent liabilities, employee and pension obligations, environmental exposure, regulatory licences, and — critically — whether the business actually owns its intellectual property rather than licensing it or relying on contractor-created work that was never assigned. Location-dependent businesses live or die on the lease: whether it can be assigned, how much term remains, and whether the landlord will demand a personal guarantee from you.

Diligence findings then flow into the purchase agreement. Each material risk should be addressed through a seller representation and warranty, an indemnity (often backed by a holdback or escrow), or a price adjustment. This is doubly important in share deals, where you are assuming the company's entire history — strong reps, warranties, and indemnities are the mechanism that shifts pre-closing liabilities back to the seller. The letter of intent that precedes all this is mostly non-binding, but its confidentiality, exclusivity, and expense clauses usually do bind, so a broad no-shop can lock you in while you spend on diligence.

People, Consents, and Getting Paid What You Paid For

Much of a small business's value is goodwill that can walk out the door. Protect it with a seller non-compete and a transition or consulting period, retention or employment agreements for key staff, and confirmation that major customer relationships are contractual rather than personal to the departing owner. Employee obligations also differ by structure: in a share deal staff continue seamlessly, while in an asset deal you typically terminate and rehire, which can trigger severance and, in many jurisdictions, successor-employer rules that preserve seniority regardless — costs you should model before setting the price.

Finally, mind the plumbing. Nearly every deal requires third-party consents — landlords, key customers, lenders, and licensors — and these should be secured before closing, not assumed. Where valuation gaps are bridged by seller financing or an earn-out, define security, default remedies, and, for earn-outs, the exact metric, how it is measured, and controls that stop the buyer from manipulating results, because earn-out disputes are among the most common post-closing fights. Precise drafting on all of these turns a handshake into a business you actually own and can run.

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